Bargaining Power of Customers

Customers want better quality products and services at a lower price. Satisfying this want might force down the profitability of suppliers in the industry?

Factors determining the power of the customers:

(a) How much the customer buys

(b) How many buyers are there – few buyers but each is large relative to the supplier, then the buyers will be powerful.

(c) How critical the product is to the customer’s own business

(d) Switching costs (the cost of switching supplier)

(e) Whether the products are standard items (hence easily copies) or specialized

(f) The customer’s own profitability: a customer who makes low profits will be forced to insist on low prices from suppliers

(g) Customer’s ability to bypass the supplier (or take over the supplier)

(h) The skills of the customer purchasing staff, or the price awareness of consumers

(i) When product quality is important to the customer, the customer is less likely to be price-sensitive, and so the industry might be more profitable as a consequence.


(source: BPP Learning Media)



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